Strategies for Effective (and Legal) Succession Planning

Strategies for Effective (and Legal) Succession Planning

This article, written by Wright Lindsey Jennings' Michelle M. Kaemmerling and published by HR Professionals Magazine, examines thoughtful ways to approach succession planning as a strategic business tool.

Succession management is an important part of strategic business planning. This entails identifying and developing internal employees who have the potential to assume leadership roles in the future and often necessitates talking to current key employees about their retirement plans. Giving some thought to how you approach these conversations can help you avoid claims that age bias—rather than strategic planning—is motivating the discussions.

Many employees are working longer than they might have expected to at the beginning of their career. There has been a steady increase in retirement age; in 2014, a Gallup poll found that the average retirement age in the United States had risen to 62. The same poll found that the age at which Americans expect to retire increased to 66. And, employees born after 1959 are not eligible for full social security retirement benefits until age 67.

Age Cannot Be a Factor in Any Employment Decision

The Age Discrimination in Employment Act (ADEA) protects employees who are 40 or older from age discrimination. Many states have civil rights statutes that also prohibit age discrimination in employment. This means that an employer cannot consider an employee’s age in making any decision about his employment. For example, in identifying employees who will be laid off, it would be improper for a company to select those who are closer to retirement age. Layoff decisions must also be analyzed carefully to confirm there is no disparate impact on older workers.

Discussions about Retirement Planning Should Not Reference Age

Courts have recognized that employers have a legitimate business interest in knowing their employees’ plans for the future, but discussions about succession planning should be age neutral. Obviously, a conversation that starts, “You’re getting on up there, how much longer you think you want to do this?” is more likely to be perceived as pressuring the employee to retire, or harassing the employee, than one that approaches the issue without reference to age. Similarly, a company that initiates succession planning discussions with all employees whenever they reach a certain age may have a hard time defending a claim of age bias.

When you initiate discussions about retirement plans or succession planning, avoid any reference to age (or proxies for age such as “baby boomers” or “your generation”). In a recent age discrimination case, the statement “the time for you to retire has come” was found to support an inference of age discrimination. Employees can be offended by such comments even when made by someone who is their age or close to their age. The better practice is to approach the discussion in terms of the employee’s career plans and goals and to try to have such discussions with all employees—or at least all employees in similar positions—regardless of age.

Do Not Pressure Employees to Retire

Some courts have found that repeatedly asking an employee about retirement or encouraging them to retire may be evidence of age discrimination. If you approach an employee about her retirement plans and she indicates that she has no plans to retire, accept the answer and move on. Avoid expressing disappointment or saying anything to make the employee feel like you’re pushing her to retire.

On a related note, steering an employee towards retirement as a way to avoid addressing performance concerns can be fraught with peril. If the employee resists retirement and is ultimately discharged for performance, you can expect her to cite the comments urging her to retire as evidence that the real reason for termination was age. As is so often true when performance issues are in play, what looks like an easy out will end up causing you more trouble. Instead, if there are performance concerns with an older worker, address those concerns directly and the same way you would any other employee. Note, however, that if an employee is being discharged for performance, you could offer resignation as an alternative to an involuntary termination. Just don’t fall into the trap of pushing retirement in order to avoid tough conversations about performance.

Employers should also keep in mind that the ADEA can come into play when companies adopt plans intended to incentivize early retirement. At least one court found that such plans run afoul of the ADEA when benefits are based solely on age at retirement, as opposed to years of service or salary.

Severance Packages and Valid Waivers of Age Claims

Sometimes it makes sense to offer a severance package in conjunction with an employee’s retirement or early retirement, though such conversations must be handled carefully for the reasons discussed above. Unless company policy provides otherwise, severance packages should generally require the employee to provide a full release of all claims or potential claims in exchange for the severance payments. If an employee signs a valid release of claims in conjunction with a severance package, he has waived his right to later claim that the company forced him to retire or otherwise discriminated against him because of age.

Keep in mind that in order to obtain an enforceable release of claims under the ADEA you have to follow the requirements of the Older Workers Benefits Protection Act. That Act generally requires, among other things, that the employee be given 21 days to consider the release and seven days to revoke the release after signing. And if a layoff or exit incentive affects more than one employee, you must give employees forty years of age and older at least 45 days to review the release agreement, identify the “decisional units,” and disclose in the release agreement the job positions and ages of the employees in each of the decisional units.

With a little thought and planning, companies can have the conversations necessary to grow their business and plan for the future, while still meeting the needs of all employees, regardless of age.